What is the total warranty expense recorded by Grando Company in the first year?

To determine the total warranty expense recorded by Grando Company in the first year, it's essential to consider how warranty expenses are typically estimated and recognized under generally accepted accounting principles (GAAP). Warranty expenses are recognized in the period when sales occur, matching the expense to the revenue generated from those sales.

The calculation usually involves analyzing the total sales of products that come with warranties and estimating the expected costs associated with those warranties, often based on historical data or industry standards.

In this case, if the total warranty expense recorded is 900, it indicates that this amount has been estimated as the total cost the company expects to incur due to warranties for the products sold during that first year. This aligns with the accrual accounting principle, where the company recognizes expenses in the same period as the revenues generated from those sales.

Consequently, recognizing a warranty expense of 900 ensures the financial statements accurately reflect the costs associated with the related sales, providing a clear picture of the company’s obligations and financial position. This helps users of the financial statements understand the potential future cash outflows related to those warranties.